Thursday, 23 December 2010

Red Football parent companies issues two new shares each: for £249m!


As expected after passing resolutions on 22nd November allowing the issue of new shares to repay the PIKs, the two parent companies of Red Football (Red Football Joint Venture and its parent Red Football Shareholder) have today filed documents at Companies House confirming they have issued new shares. You can see the documents here (RFJV) and here (RFS).

Both companies issued two new shares each on PIK repayment day (22nd November). For both companies, one share has a paid up amount of £31,578,649.41 and the other share £217,525,995.10 for a total of £249,104,664.51 (that is how much was paid for the shares). Crucially, these new shares rank pari passu with the existing shares in each company, that is to say that they have no additional rights that the existing shares do not have. Could the split between two shares (13% and 87%) represent the proportions of the PIKs owned by the Glazers and third parties respectively?

Prior to these share issues, RFJV had 988,183 shares in issue and RFS had 990,002 shares in issue. Given these new shares represent only around 0.0002% of the shares already issued, we can pretty safely conclude that they have not been issued to a third party (who would pay £249m for 0.0002% of United?) and have therefore been issued to a Glazer company. We will know definitively in January or February when the "Annual Returns" are filed at Companies House.

We are thus left with the mystery of where the Glazers got £249m from. I stand by my view that this money probably came from a debt financing at the level of one of their US holding companies (the next company in the chain above Red Football Shareholder Ltd is "Red Football Limited Partnership" of Nevada). Others may think that the family had the cash knocking around somewhere. Today's filings probably mean we will never find out the truth as if there has been new debt issued it is in America where we cannot see the details.

At least we're top of the league.... Happy Christmas and happy New Year.

LUHG

18 comments:

Jack said...

We still have no idea where the money came from =/
Let's just hope that the manager has money to spend

Steve said...

But if United is notionally valued between £1bn and £1.8bn, wouldn't £249m worth of shares represent ~14% to ~25% of United?

andersred said...

Exactly Steve. Which means these shares can't have been issued to a third party. They must have been issued to another Glazer company. And so we are left with the Christmas mystery of where the money came from.....

anders

Steve said...

Oh I see what you're saying. I've just had a look at the documentation and it seems the £249m has simply bought a couple of extra shares (whereas I had assumed the number of shares had gone up pro rata to the £249m).

One would think the premier league should investigate the source of the £249m, but of course I suppose that will never happen.

Anonymous said...

This is great news. The PIK debt has been replaced by equity.
My fear was that somewhere within the Red Football group we would see replacement debt. This suggests that hasn't happened.
The Glazers now have no immediate need to pay dividends to reduce down Red Football debt.
It is possible they will start to look at using the positive cash flows to buy-back parts of the bonds.
United are definitely in a better position following this news.

Anonymous said...

Hi Anders
Any reason why they issued 2 shares in both companies? And why that spilt(13%/87%)? It mirrors what we assumed might be their own pik holding; but surely they were not obliged to reflect this split in the paid-in value of the shares?

Another thing Anders: I don't think that the PIKs had accumulated to the 250m paid in. Does this mean that the club has excess cash in bank, including the Glazers own take from the pik, as a result of the transaction?
Perhaps they intent to clear their own personal loan (10+m) from the club at the same time. It would be interesting to get a total for the loan to directors and the PIKS.

Some final thoughts: If the replacement debt has been transferred across the waters and thus cloaked, might we infer its existence by virtue of the annual dividends (unencumbered now by the piks at least) the Glazers will need to take to meet its cost. Regular payments of equivalent amounts should be an indicator.
Interestingly, T Panja noted (as the story about the piks broke) that the Glazers had sought permission from the pik-holders to use 50m to deal with the bonds. Redeeming the bonds at this stage is quite expensive but removing a chunk of bonds would reduce covenant restrictions and increase their maximum annual dividend entitlement.
One last point: Without the pik or 'replacement debt' acting as a shield at the RFJV level, will the club be facing a CT outgo in the near future? Prior losses might provide a cushion in the near term though.

Have a good Xmas.

Anonymous said...

I should correct myself at 22:03 above.
The Piks would have reached approx 250 at redemption- I used the lower interest rate (pre-penalty). but the Glazers have paid in there share as well, so perhaps they intend to clear their outstanding loan.

andersred said...

I don't have an explanation for the two separate shares other than the coincidence with their own PIK holding, but no I too can't see that would require the issue of two shares....

To the "good news" Anonymous, if it's equity great, but where has it come from? And why wait so long to repay them? These things cost £115m in rolled up interest from Aug 2006 to November 2010 or 90% of the original face value. Even with the tax shield they cost £80m+. If there was cash lying around, why not use it? And even Forbes can't point to any family assets other than the Bucs (up to their leverage limit), First Allied (ditto) and United.

Of course if Joel was keeping to his 2005 promise of talking to the fans we could ask him, but sadly he isn't (despite doing an annual Bucs related TV interview in the
US).

anders

andersred said...

Quick follow up to Anon at 22.03. Yes, the payment or non-payment of dividends is of course the key. Time will tell. And yes, there will be a corporation tax impact going forward.

anders

Anonymous said...

I think the takeover, and all the subsequent events, points towards the Glazer's being no mugs when it comes to their financial arrangements.

Of course it could all unravel in the future. But if was I putting a bet on it, I think the Glazers will walk away from United (whenever that happens) with a huge profit - perhaps double the takeover price. The only thing I could think of that could stunt their potential profit is if SAF's retirement heralds a sharp downturn in United's performance on the pitch.

Greville.

Anonymous said...

Why do people insist on playing the tax card ... it's total rubbish.
A bank and the inland revenue are both 3rd parties. Paying 100m interest to one 3rd party just to NOT pay 30m to another 3rd party is just ridiculous.
I would just rather pay the 30m so I DON'T have to pay the other an extra 70m.
It's a totally ludicrous argument and there are other ways to minimise tax.

andersred said...

To Anonymous at 12.59. You're absolutely right that no money is "saved" through the tax shield on interest, but it does reduce the net cost of interest...

The £35m corporation tax "saved" during the life of the PIKs would have been paid if they had not existed, so the additional cost of the PIKs was c.£80m in interest not the headline £115m. That's all I was trying to say....

anders

Anonymous said...

It represents another mystery on behalf of the glazer family, where did the Funds come or move from? A third party? Start of an exist plan?
Who Knows folks and we will never Know
Can i wish all the Posters a happy Christmas and Look forward as always to the next instalment
Slan Go Foill

Usman said...

Hullo every1. @AndersRed, where are we going with this structure? this share split as reported to do with ownership of debt. But what's the next step?

Anonymous said...

"I don't have an explanation for the two separate shares other than the coincidence with their own PIK holding, but no I too can't see that would require the issue of two shares...."

Looks like 2 separate sources of funding: 350m in dollars to clear the amount owing to pik-holders other than themselves with the residual being paid in by the Glazers to clear their own pik-holding. There probably was a settlement surplus from the dollar strengthening against the pound (c. £1.5m) which benefited the Glazers-they paid in less than they received from their pik-holding. I am assuming that £249.1m exactly clears the pik and the £31.6 paid-in share was used as a balancing amount.
If dollar refinancing is involved then unless the Glazers had an urgent need for cash, they probably refinanced the c. 87% belonging to others. $350M fits with exchange rates prevailing in mid-November when it seems (according to reports) that they quite suddenly found cash from somewhere.
Alot of guesswork but.......

Anonymous said...

@Anders
Do you plan to do an update on the Glazer wastage. Last I heard it was £437m, way back in May. How much is it now?

Anonymous said...

"Today's filings probably mean we will never find out the truth as if there has been new debt issued it is in America where we cannot see the details."

Good. So we can shut up about it. As the club have always maintained, their debt is limited to the bond. We don't need to know about the Glazers finances. There are plenty of potential buyers around if the Glazers find they can't afford to continue to own the club.

Anonymous said...

And the fact that this was in papers as well further proof that they have cash somewhere or the continued Support of there banking partners
http://www.telegraph.co.uk/sport/football/teams/manchester-united/8231295/Malcolm-Glazers-son-belies-Manchester-Uniteds-austerity-by-buying-luxury-Chicago-apartment.html